Cannabis Tax Collection in Cash Overwhelms IRS

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It’s an established practice in businesses circles that it is wise to pay taxes through checks or electronic means to relevant revenue collectors this saves time and effort.

However, state-based cannabis businesses have to pay their taxes the old-fashioned way — with loads and loads of cash. Cannabis businesses have to schedule an in-person appointment with the local IRS bureau in order to submit their taxes in hard cash. Representatives carrying cash from the business are shown to a secure room where two IRS agents are already present. The representatives then proceed to count hundreds and thousands of dollars in payments to the bureau in front of the agents.

Editor’s Note: Not to mention the armored car transportation for the cash. If the business is big enough, it might even be several armored cars.

This grueling exercise has become a regular propect for cannabis businesses, which are mostly deprived of regular banking services because of stringent federal laws on the legality of marijuana. Even though efforts are being made at the state and local levels to provide regular financial services to legal cannabis entities, a recent report suggests that 70% of all statewide cannabis businesses are still operating without modern banking services. Regardless of how the money is being used, such as customers’ payments, employee salaries, or tax payments, the majority of cannabis businesses are still dealing in cash.

The IRS is also Feeling the Blunt

Dealing in hard cash is a significant inconvenience to both customers and businesses. Consumers can’t shop for legal cannabis with credit cards through POS transactions. Cannabusinesses can’t deposit their income in a nearby bank vault, and thus have to stock bundles of hard cash, leaving them vulnerable to robberies and break-ins.

These problems are well-known and extensively documented. However, the cash problem doesn’t just affect consumers and businesses. It also serves as a major nuisance for the federal tax agency, IRS. It has become ‘taxing’ for the IRS to collect millions and billions of cannabis taxes in cash.

According to official figures from last year, statewide cannabis businesses paid more than $4.5 billion in taxes, and all of it was done in cash. How is the IRS managing such humongous tax collection in cash? Per recent news reports, a Virginia-based company, Mitre Corporation, has secured a $1.7 million contract from the IRS to count cannabis tax payments involving large cash sums. Financial experts working with the industry believe that that this million-dollar contract doesn’t just entail counting the cash; the company might also be providing the federal agency expertise for processing the billions of cash payments within its system.

Before a cannabis business won a lawsuit against the IRS in 2014, the federal agency used to impose a penalty of 10 percent on all businesses that paid their taxes in cash. After the court’s ruling, the IRS has removed the penalty, but still strongly advise cannabis businesses to find a banking channel for tax payments.

Even banks that offer their services to cannabis businesses prefer to keep them to bare-minimum functionality. Unlike regular ventures, cannabis proprietors can’t get merchant services. They are also not eligible to secure credit lines or mortgages. This unwelcoming attitude isn’t just hurting cannabis businesses, it’s hurting everyone.